[Federal Register: December 26, 2002 (Volume 67, Number 248)]
[Rules and Regulations]
[Page 78935-78946]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26de02-20]
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Part V
Department of the Treasury
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Fiscal Service
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31 CFR Part 285
Centralized Offset of Federal Payments to Collect Nontax Debts Owed to
the United States; Final Rule
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DEPARTMENT OF THE TREASURY
Fiscal Service
31 CFR Part 285
RIN 1510-AA65
Centralized Offset of Federal Payments to Collect Nontax Debts
Owed to the United States
AGENCY: Financial Management Service, Fiscal Service, Treasury.
ACTION: Interim rule with request for comments.
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SUMMARY: This interim rule describes the general rules and procedures
applicable to the centralized offset of Federal payments to collect
delinquent, nontax debts owed to Federal agencies. The Department of
the Treasury's Financial Management Service has established the
Treasury Offset Program (TOP) in order to centralize the process by
which Federal payments are withheld or reduced (in other words, offset)
to collect delinquent debts. This interim rule specifically applies to
the centralized offset of all types of Federal payments by Federal
disbursing officials to collect delinquent, nontax debts owed to the
United States. Therefore, this interim rule affects persons who owe
delinquent, nontax debts to the United States and who receive Federal
payments. It also affects Federal agencies that are owed delinquent
debts and that disburse and certify Federal payments. This rule does
not apply to collection of child support debts and other debts owed to
States.
DATES: This rule is effective December 26, 2002. Comments must be
received by January 27, 2003.
ADDRESSES: All comments should be addressed to Gerry Isenberg,
Financial Program Specialist, Debt Management Services, Financial
Management Service, Department of the Treasury, 401 14th Street, SW.,
Room 151, Washington, DC 20227. A copy of this interim rule is being
made available for downloading from the Financial Management Service
Web site at the following address: http://www.fms.treas.gov/debt.
Comments may also be received via the internet as directed on the Web
site.
FOR FURTHER INFORMATION CONTACT: Gerry Isenberg, Financial Program
Specialist, at (202) 874-6660; Tricia Long, Attorney-Advisor at (202)
874-6680.
SUPPLEMENTARY INFORMATION:
Background
A major goal of the Debt Collection Improvement Act of 1996 (DCIA),
Pub. L. 104-134, 110 Stat. 1321-358 et seq. (April 26, 1996), is to
increase the collection of delinquent, nontax debts owed to the Federal
Government. Among other things, the DCIA established a centralized
process for withholding or reducing eligible Federal payments to pay
the payee's delinquent debt owed to the United States. See 31 U.S.C.
3716(c), 31 U.S.C. 3720A(h), and 31 CFR 901.3. This process is known as
``centralized offset'' or ``offset''.
The Financial Management Service (FMS), a bureau of the Department
of the Treasury (Treasury), disburses almost 900 million payments
annually for the Federal government and is responsible for the
implementation of centralized offset of Federal payments for the
collection of delinquent, nontax debt. To meet this and other debt
collection responsibilities, FMS has established TOP. By centralizing
offset through TOP, FMS has consolidated and simplified debt collection
procedures for the Federal Government. TOP allows agencies to submit
debts to one centralized location for offset of all eligible Federal
payments. By submitting debts to TOP to comply with 31 U.S.C.
3716(c)(6) (for offset of nontax payments), agencies simultaneously
will meet the requirement to submit past-due, legally enforceable debts
to Treasury for purposes of tax refund offset. See 31 U.S.C. 3720A(a).
TOP also provides a mechanism for Federal agencies to collect debt
through the centralized offset of the salaries of Federal employees.
See 31 CFR 285.7.
TOP works as follows. Creditor agencies submit information about
delinquent debts to FMS, which maintains the information in its
delinquent debtor database. Payment agencies prepare and certify
payment vouchers to FMS and disbursing officials at other Federal
agencies (such as Department of Defense or the United States Postal
Service), who then disburse payments. The payment vouchers contain
information about the payment including the name and taxpayer
identifying number (TIN) of the recipient. Before an eligible Federal
payment is disbursed to a payee, FMS compares the payment information
with debtor information in FMS' delinquent debtor database. If the
payee's name and TIN match the name and TIN of a debtor, the disbursing
official offsets the payment, in whole or in part, to satisfy the debt,
to the extent legally allowed.
FMS transmits amounts collected through offset to the appropriate
creditor agencies after deducting fees, which FMS charges the creditor
agencies in order to cover the cost of operating the offset program.
The authority to charge fees is found at 31 U.S.C. 3716(c)(4) and
3720A(d). If not otherwise prohibited by law, creditor agencies may add
the fees to the debts as administrative costs, pursuant to 31 U.S.C.
3717(e).
FMS maintains information about a delinquent debt in TOP delinquent
debtor database and continues to offset eligible Federal payments until
the creditor agency suspends or terminates debt collection or offset
activity for the debt. A creditor agency will suspend collection if the
debt is subject to a bankruptcy stay or if other reasons justify
suspension. See 31 CFR 903.2. A creditor agency will terminate
collection of a debt if it is paid in full, compromised, discharged, or
if other reasons justify termination. See 31 CFR 903.3.
FMS has published rules that govern the offset of specific payment
types to collect delinquent, nontax debts owed to the United States.
These rules address: (1) Offset of tax refund payments to collect
delinquent, nontax debts owed to Federal agencies (31 CFR 285.2); (2)
offset of Federal benefit payments to collect delinquent, nontax debts
owed to Federal agencies (31 CFR 285.4); and (3) offset of Federal
salary payments to collect debts owed to Federal agencies (31 CFR
285.7). Nothing in this rule is intended to contradict any provision of
these more specific sections. Rather, this rule only describes
requirements and procedures which are common to the centralized offset
of all Federal payments to collect debts owed to Federal agencies. To
the extent any provision of this rule is inconsistent with a more
specific provision of sections 285.2, 285.4 or 285.7 of this Part, the
more specific provision shall apply.
Section Analysis
(a) Scope
Paragraph (a) describes the scope of this section, which governs
the centralized offset of Federal payments to collect delinquent,
nontax debts owed to Federal agencies in accordance with the
requirements of 31 U.S.C. 3716(c)(6), 3720A(a), 26 U.S.C. 6402, and all
applicable regulations.
This regulation only applies to the extent that it does not
conflict with the more specific provisions of the rules for tax refund
offsets (see 31 CFR 285.2), salary payment offsets (see 31 CFR 285.7)
and benefit payment offsets (see 31 CFR 285.4).
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This section does not apply to administrative offsets that occur
outside of TOP (known as ``non-centralized offsets''). Non-centralized
offsets are governed by the Federal Claims Collection Standards (see 31
CFR 901.3(c)) and agency-specific regulations.
This section does not apply to the offset of payments to collect
debts owed to States (see 31 CFR 285.8) or to collect delinquent child
support payments (see 31 CFR 285.1 and 285.3).
This section does not apply to garnishments or Internal Revenue
Service levies of Federal payments. Offsets are not garnishments. An
offset occurs when the Federal government withholds money owed to a
person to satisfy a claim owed by that same person to the government.
Garnishment is a process whereby a creditor attaches wages or other
property belonging to a debtor which is in the possession of a third
party. A levy is the means by which the Internal Revenue Service or
other tax collecting authority seizes the delinquent taxpayer's
property. See 26 U.S.C. 6331. Regulations governing garnishments and
levies do not apply to offsets under this section. For example,
regulations which exclude travel reimbursements from court-ordered,
commercial garnishments on Federal pay (see 5 CFR 582.102) do not
preclude offsets under this section. Therefore, payments which
reimburse Federal employees for travel or other employment-related
expenditures are subject to offset under this section, regardless of
whether they may be garnished to collect debts owed to third parties.
This section applies only to payments that a payment certifying
agency has certified to a disbursing official for disbursement. It
therefore does not apply to payments made directly with a government
credit card.
Lastly, the receipt of collections pursuant to this section does
not preclude a Federal agency from pursuing all other available debt
collection remedies simultaneously, provided that collections do not
exceed the amount of the debt, including any interest, penalties, and
administrative costs.
(b) Definitions
Paragraph (b) of this section sets forth definitions applicable to
this rule. It is important to note that the terms used in this section
are defined for purposes of this section only. For example, whether a
debt is ``legally enforceable'' for purposes of centralized offset
pursuant to this section has no bearing on whether the debt is legally
enforceable for purposes of placing a lien on the debtor's property or
for some other debt collection purpose.
(c) General Rule
Paragraph (c) of this section sets forth the general rule that
creditor agencies must submit their delinquent debts to FMS for offset,
and that disbursing officials must offset payments to collect those
debts. See 31 U.S.C. 3716(c).
(d) Requirements for Creditor Agencies
Paragraph (d) sets forth the requirements for Federal creditor
agencies with regard to centralized offset. As noted above, creditor
agencies will meet the requirement to submit debts to Treasury for
purposes of tax refund offset by submitting debts to FMS pursuant to
this section. See 31 U.S.C. 3720A(a). The requirements of this section
take into account the provisions of various statutes and regulations
which apply to the offset of Federal payments in general, as well as to
specific types of Federal payments.
Paragraph (d)(1) restates the statutory requirement that creditor
agencies notify FMS of all past-due, legally enforceable, nontax debt
which is delinquent for more than 180 days, for purposes of collection
by centralized offset. See 31 U.S.C. 3716(c)(6). Paragraph (d)(1) also
provides a creditor agency with 30 days following a decision on an
appeal within which to submit a debt that is more than 180 days
delinquent. This rule allows for an additional 30 days, because
immediate transfer of a debt to FMS following a decision on an appeal
might be impractical. The 30-day period provides debtors with an
opportunity to pay the debt or to enter into a repayment plan with the
creditor agency before offset action is taken. When a creditor agency
determines that a debtor is unlikely to pay the debt or enter into a
repayment plan within the 30-day period, it should submit the debt to
FMS immediately following a decision on an appeal.
Paragraph (d)(2) provides that creditor agencies may notify FMS of
debts delinquent for less than 180 days for purposes of offset. FMS
encourages agencies to submit debts to TOP as soon as they become
eligible, in order to maximize collections.
Paragraph (d)(3) describes the requirements for a debt to be
eligible for centralized offset. For a creditor agency to submit a debt
to FMS for offset, the debt must be past due and legally enforceable in
the amount stated by the creditor agency, be less than 10 years
delinquent (unless the debt may be collected by offset legally if more
than ten years delinquent, as is the case with judgment debts and
education loans), have a balance greater than $25, and not be secured
by collateral subject to foreclosure. Generally, the debt should not be
secured by collateral subject to a pending foreclosure action unless
the creditor agency certifies that offset will not affect the
government's rights to the secured collateral. Additionally, the
creditor agency must certify that the debt is eligible for collection
by offset, as required in paragraph (d)(6) of this section.
Debts owed by foreign sovereigns are excluded from the mandatory
requirement under paragraph (d)(1) that creditor agencies notify FMS of
all past-due, legally enforceable, nontax debt which is delinquent for
more than 180 days, for purposes of collection by centralized offset.
This exclusion applies only to debts owed by foreign sovereigns and
does not apply to debts owed by privately owned foreign corporations or
by foreign individuals. This exclusion does not preclude a creditor
agency from voluntarily notifying Treasury of debt owed by foreign
sovereigns for the purpose of offset to the extent allowed by law. FMS
has excluded debts owed by foreign sovereigns from the requirement
described in paragraph (d)(1) pursuant to 31 U.S.C. 3716(c)(5). Section
3716(c)(5) authorizes the Secretary of the Treasury to prescribe such
rules, regulations, and procedures as the Secretary considers necessary
to carry out centralized offset under section 3716(c). The Secretary
deems it necessary to exclude debts owed by foreign sovereigns because
mandatory notification of such debts to Treasury for collection by
offset could interfere with important foreign policy goals.
Paragraph (d)(3)(iv) describes creditor agencies' responsibilities
to report certain debt information to Treasury on a report known as
Treasury Report on Receivables (TROR). When reporting amounts eligible
for TOP, agencies must report amounts that have been excluded from TOP
and state the reasons for the exclusions consistent with this
paragraph. Detailed instructions on completing the TROR can be found at
http://www.fms.treas.gov/debt/dmrpts.
For purposes of this section, a debt is generally deemed past due
or delinquent if it is not paid when due, whether that be the date
specified in an initial notice or a date specified in a contract or
other applicable agreement. Creditor agencies determine when a debt is
delinquent based on applicable statutes, regulations and policies.
Nothing in this section is intended to define when a debt is delinquent
or legally enforceable for purposes of
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anything other than when a debt may be submitted to FMS for purposes of
centralized offset. A debt is legally enforceable if there has been a
final agency determination that the debt is due in the amount stated,
and there are no legal bars to collection by offset. A debt is legally
enforceable for purposes of this section as long as the 10-year
limitation (or other applicable time limitation on offset) has not been
exceeded, regardless of any limitation on when a claim may be brought
in a civil action. Creditor agencies should consult with their agency
counsel to determine the legal enforceability of debts for purposes of
this section.
Paragraph (d)(4) describes the requirements for creditor agencies
to publish regulations regarding offset. Creditor agencies must
promulgate regulations governing offset in accordance with 31 U.S.C.
3716(b)(administrative offset), 3720A(a)(tax refund offset), and 31 CFR
901.3(b)(4)(Federal Claims Collection Standards) prior to submitting
debts for offset. Additionally, creditor agencies must promulgate
regulations in accordance with 5 U.S.C. 5514, 31 CFR 285.7(d)(2), and 5
CFR 550.1104 in order to collect debts through the centralized offset
of Federal salary payments. Creditor agencies must comply with the
prerequisites for the offset of all types of Federal payments in order
to participate fully in the centralized offset through TOP. If, for
example, a creditor agency has not published regulations concerning the
offset of Federal salary payments, then disbursing officials cannot
offset salary payments to collect that creditor agency's debts.
Paragraph (d)(5) sets forth the information required for each
delinquent debt submitted to FMS for offset. All of the information is
necessary for the successful operation of TOP.
Paragraph (d)(6) describes the certification that creditor agencies
must provide to FMS for each debt. Creditor agencies must certify to
FMS that the requirements of 31 U.S.C. 3716(a), 3720A, 26 U.S.C. 6402,
and applicable agency-specific statutes and regulations related to
offset have been met. The creditor agency must certify the following
for each debt: (1) the debt meets the requirements set forth in
paragraph (d)(3) of this section, regarding debt eligibility; (2) the
creditor agency has given the debtor due process pursuant to 31 U.S.C.
3716, 3720A and 26 U.S.C. 6402; and (3) the creditor agency has
complied with 31 U.S.C. 3717 with respect to the assessment of
interest, penalties and administrative costs. The certification must be
executed by the head of the agency or by a person with delegated
authority to make such certification on behalf of the head of the
agency.
With respect to the certification that the creditor agency has
provided due process, neither the DCIA nor this rule changes the
existing requirement that agencies provide due process prior to offset.
Such due process requirements are set forth in 31 U.S.C. 3716(a),
3720A, and any agency-specific statutes and regulations applicable to
the debt. Creditor agencies must inform debtors by written notice that
the creditor agencies intend to offset eligible payments and that the
debtor has an opportunity to review applicable agency records and to
seek a review of the determination of the debt. In accordance with the
creditor agency's policies and procedures, the debtor may provide
evidence to the creditor agency that collection of the debt by
administrative offset would result in a financial hardship. The debtor
may also make alternative payment arrangements, which are acceptable to
the creditor agency. There is an additional due process requirement
when the creditor agency has submitted the debt for offset of the
debtor's Federal salary. Prior to offsetting a Federal salary, the
creditor agency must notify the debtor that she or he has an
opportunity for a hearing pursuant to 5 U.S.C. 5514, 5 CFR 550.1104,
and applicable creditor agency regulations. Such notification may be
combined with any other due process notices or may be sent separately.
As noted in paragraph (d)(13), nothing in this section requires
agencies to duplicate any notice, review or hearing previously provided
to the debtor. For example, if the agency has provided the debtor with
a hearing concerning the existence of a debt, this section does not
require an agency to provide a second hearing concerning the same issue
in order to submit the debt for offset. In such circumstance, however,
the debtor may be entitled to a review (or hearing, if a Federal
employee and the agency seeks to offset his or her Federal salary)
concerning any other issues not addressed in the previous hearing. In
this example, the debtor may contest the accuracy of the current debt
balance (i.e., whether the agency had properly credited payments made
subsequent to the hearing).
Paragraph (d)(7) explains that creditor agencies will be asked to
update the certifications of debts maintained by FMS in order to ensure
that the debts continue to meet the requirements of paragraph (d)(6),
including that the creditor agency has properly applied credits to the
debt balance (other than collections through centralized offset).
Periodic updates are required to ensure that information about the
debts is current and accurate.
Paragraph (d)(8) also explains that the certification required by
paragraphs (d)(6) and (d)(7) of this section, and any other information
regarding delinquent debts transmitted to FMS, will be made in a form
and manner as prescribed by FMS. The form may include, but is not
limited to, electronic data transmission. In order to submit
certifications electronically, a creditor agency must sign an agreement
with FMS agreeing that the creditor agency will certify debts in
accordance with instructions from FMS, that any person who the creditor
agency allows to certify debts electronically will have the delegated
authority to certify the debts on behalf of the head of the agency, and
that such person knows that they are certifying to all of the
requirements of paragraph (d)(6) of this section and any other terms of
the certification as set forth in the agreement. FMS will require any
agreement regarding electronic certification to be re-executed
periodically, usually on an annual basis. This periodic execution will
ensure that creditor agency personnel remain aware of their
responsibilities and authorities when certifying debts for centralized
offset.
Paragraph (d)(9) explains that agencies which designate disbursing
officials pursuant to 31 U.S.C. 3321(c) are not required to certify
debts arising out of their own operations for purposes of centralized
offset under this section prior to collecting such claims by offset.
For example, if the Department of Defense (DOD) is about to disburse a
payment to a person who also owes a delinquent debt to it, DOD may
offset such payment, in accordance with applicable law, without first
certifying the debt to FMS for purposes of centralized offset.
Paragraph (d)(10) describes the creditor agencies' responsibility
to correct and update information contained in delinquent debt records.
While information about a debt is maintained in TOP's delinquent debtor
database, the creditor agency remains responsible for administering the
debt. This means that the creditor agency remains responsible for
answering inquiries about the debts, negotiating agreements with the
debtor, maintaining records applicable to the debt, and applying any
amounts received with respect to the debt other than amounts collected
through centralized offset. Creditor agencies make all decisions
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concerning their debts. Creditor agencies determine whether debts are
eligible for offset and whether offset funds should be returned to
debtors who claim that the debts were not eligible for offset.
If creditor agencies receive funds from any source other than
centralized offset, they must submit the updated balance information to
FMS; however, FMS will apply any funds received through centralized
offset to the debt balances within TOP and notify creditor agencies of
such collections.
Creditor agencies are also responsible for notifying FMS
immediately if there is a change in the status of the legal
enforceability of any debt. For example, if a creditor agency learns
that a debtor has filed for bankruptcy protection and the automatic
stay is in effect, that creditor agency must notify FMS, in the manner
prescribed by FMS, that the debt is no longer legally enforceable.
Likewise, if the bankruptcy is dismissed, the debt has not been
discharged, and there are no other legal obstacles to collection, the
creditor agency should notify FMS immediately that the debt is once
again legally enforceable. As a practical matter, this means that
creditor agencies must have procedures in place to track the status of
their debts which are in bankruptcy and to update FMS promptly.
Creditor agencies should seek legal advice from their agency counsel
concerning the impact of the Bankruptcy Code, particularly 11 U.S.C.
106, 362, and 553, on pending, contemplated or completed collections by
offset.
If a debt is being collected and serviced by FMS or another debt
collection center, pursuant to 31 U.S.C. 3711(g), FMS, or the
applicable debt collection center, will manage the creditor agency's
responsibilities under paragraph (d)(10) of this section.
Paragraph (d)(11) addresses debts which have been transferred to
FMS or a Treasury-designated debt collection center for purposes of
collection pursuant to 31 U.S.C. 3711(g) (known as ``cross-servicing'')
or which have been referred to the Department of Justice (DOJ) for
enforced collection. A debt collection center will also be responsible
for submitting debts it is servicing to TOP on behalf of the creditor
agencies. FMS, on behalf of the creditor agencies, will submit debts in
its cross-servicing program to TOP in accordance with the requirements
of this section. See 31 CFR 285.11 for certification requirements when
transferring debts to FMS for debt collection purposes. DOJ will submit
debts to FMS for centralized offset on behalf of the creditor agency,
as DOJ deems appropriate, for all debts which have been referred to DOJ
for collection enforcement.
Paragraph (d)(12) explains that if a creditor agency has determined
that the offset amount allowed by law would result in financial
hardship to the debtor, and that a lesser offset amount is reasonable
and appropriate based upon the debtor's financial circumstances, then
the creditor agency may specify that the disbursing official offset a
lesser amount.
(e) Payments Made By the United States
Paragraph (e) discusses the rules applicable to Federal payments
covered by this section. This section generally applies to all Federal
payments (regardless of the payment mechanism used, e.g., check or
electronic funds transfer), unless offset against such type of payment
is expressly prohibited under the DCIA or other Federal statute. See 31
U.S.C. 3716(e)(2).
Paragraph (e)(1) notes that judgments paid pursuant to 31 U.S.C.
1304 (Judgments, awards and compromise settlements) are eligible for
centralized offset pursuant to 31 U.S.C. 3716(c). Nothing in this rule
affects the setoff of amounts to be paid pursuant to such a judgment in
accordance with 31 U.S.C. 3728 (Setoff against judgments), which
authorizes the Secretary of the Treasury to withhold amounts to be paid
on a judgment to offset a debt. Setoff under section 3728 occurs before
the Secretary certifies the payment for disbursement. This rule,
however, only addresses centralized offset of such payments after the
Secretary has certified them for disbursement. See volume I, part 6,
chapter 3100 of the Treasury Financial Manual for information on the
setoff and certification of judgment fund payments.
Paragraph (e)(2) provides a list of payment types that are excluded
from offset. In addition to payments exempt by law, this rule exempts
from offset all Federal loan payments other than payments for travel
advances pursuant to 31 U.S.C. 3716(c)(5). Section 3716(c)(5)
authorizes the Secretary of the Treasury to prescribe such rules,
regulations, and procedures as the Secretary considers necessary to
carry out centralized offset under section 3716(c). The Secretary deems
it necessary to exempt Federal loan payments other than travel advances
from centralized offset. If a loan payment is offset, the debtor/payee
pays off one agency by creating a debt owed to another agency. The
government's interests in debt collection through offset are not
advanced by paying off a debt owed to one agency by creating a debt
owed to another. Therefore, pursuant to 31 U.S.C. 3716(c)(5), the
Secretary exempts Federal loan payments other than travel advances from
centralized offset.
Although travel advance payments to Federal employees are
considered loans, except in limited circumstances (see 54 Comp. Gen.
190, 191 (B-180672, September 5, 1974) and 1994 WL 158116 (B-251865,
April 28, 1994)), the Secretary does not deem it necessary to exempt
travel advances from centralized offset under this section for three
reasons. First and foremost, Federal employees are ethically obligated
to ``satisfy in good faith their obligations as citizens, including all
just financial obligations, especially those such as Federal, State, or
local taxes that are imposed by law.'' See 5 CFR 2635.101(b)(12). If
the Federal employee is unable to pay a debt, the employee should
contact the creditor agency to make satisfactory repayment arrangements
in order to avoid offsets of travel advances under this section. Absent
such action by the Federal employee, any travel advances made to that
employee should be offset to pay an employee's delinquent debts. The
employee remains responsible for traveling, if required for the
performance of his or her duties. Second, unlike traditional Federal
loan programs, travel advances are short-term debts, which are repaid
as soon as the employee travels. Third, delinquent debtors are barred
from receiving Federal loans (see 31 U.S.C. 3720B), yet agencies
generally do not access employees' credit reports or other sources of
information to verify whether an employee owes a delinquent Federal
debt prior to issuing a travel advance. Failing a bar by the agency
issuing the travel advance, it is appropriate for the Government to
offset the travel advance payment to satisfy the employee's delinquent
debts.
Paragraph (e)(3) explains that specific rules apply to the
centralized offset of tax refunds, certain benefit payments and Federal
salary payments. See 31 CFR 285.2, 285.4, and 285.7, respectively. This
section applies only to the extent that it is not inconsistent with the
provisions of the rules that apply to each payment type.
Paragraph (e)(4) states that a payment made jointly to two or more
persons (i.e., ``joint payees''), may be offset in its entirety to
satisfy the debt of any one of the joint payees. FMS assumes that joint
payments are made to persons who each own an undivided interest in the
whole payment. A joint payee who believes that he or she is entitled to
a portion of the monies that have been offset must
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contact the payment agency which issued the payment. The payment agency
must determine, based upon applicable laws and policies, if a refund of
any portion of the offset amount is appropriate. If a couple files a
joint Federal income tax return, and a resulting refund is offset to
collect a debt which is owed by only one of the spouses, the spouse
that does not owe the debt (i.e., the ``injured spouse'') must contact
the Internal Revenue Service to claim the portion of the tax refund to
which he or she is entitled. The IRS Web site, found at www.irs.gov,
contains instructions for the injured spouse to make a claim for his or
her portion of the tax refund. At the time of writing, such claims are
processed on IRS Form 8379.
Paragraph (e)(5) states that payments made to representative payees
(i.e., the named payee is receiving the payment solely in the person's
capacity as a representative for the beneficiary of the payment) will
only be offset to collect delinquent debt owed by the payment
beneficiary. For example, if a payment is made to an attorney solely
for the benefit of his or her client, FMS will offset such payment only
to collect a debt owed by the client. FMS will not offset the payment
to collect a debt owed by the named payee attorney. Payment agencies
are responsible for properly identifying representative payees.
Paragraph (e)(6) addresses the offset of payments which have been
assigned to a third party (known as ``assigned payments''). In certain
circumstances, FMS may offset an assigned payment to collect debts owed
by either the assignor or the assignee. See 31 U.S.C. 3716(e)(2)
(offset permissible if not prohibited). For example, if a Federal
contractor has assigned the right to receive payment under a Federal
contract to a financial institution, FMS may offset the payment to
collect a debt owed by either the contractor or the financial
institution. FMS will offset assigned payments made to Federal
contractors within the limits of 41 U.S.C. 15, 31 U.S.C. 3727 and
implementing regulations (including, as applicable, the Federal
Acquisition Regulation (48 CFR Chapter 1)). This rule does not address
the validity of any assignment of payments. At the time of the
publication of this regulation, FMS has not yet fully implemented
offset of assigned payments. FMS will provide guidance to payment
agencies prior to implementation.
Paragraph (e)(7) describes how payment agencies may request that
the Secretary exempt payment types from centralized offset and how the
Secretary will evaluate and respond to such requests. The DCIA requires
the Secretary to exempt from centralized offset payments made under
means-tested programs when the head of the payment agency requests such
exemption in writing. The DCIA also authorizes the Secretary to exempt
payments made under non-means-tested programs at the written request of
the head of the payment agency. See 31 U.S.C. 3716(c)(3)(B). FMS has
published and made available on its Web site (www.fms.treas.gov/debt)
standards and procedures for the exemption of classes of payments from
centralized offset. Paragraph (e)(7)(i) explains when an exemption
request for means-tested payments will be granted. Paragraph (e)(7)(ii)
explains that the Secretary may exempt non-means-tested payments in
accordance with the published standards. Paragraph (e)(7)(iii) explains
that the requests for exemptions must be made in writing following
guidance issued by FMS pursuant to 31 U.S.C. 3716(c)(3)(B). Exemptions
apply to classes of payments and not to individual payments. A list of
payments exempt from offset may be found on the FMS Web site at
www.fms.treas.gov/debt.
Consistent with the foregoing paragraph, contracting officials at
Federal agencies do not have the authority to exempt contract payments
from centralized offset. Payments are exempt from centralized offset
only if expressly made exempt by statute or if the Secretary grants an
exemption. Therefore, contract clauses prohibiting a Federal agency
from offsetting a payment generally do not apply to centralized offset
pursuant to this section, regardless of whether such clauses may be
effective as to offsets made by the contracting agency pursuant to
other authorities.
Paragraph (e)(8) explains that payment agencies must prepare and
submit payment vouchers in the manner prescribed by FMS or other
disbursing official, in order to maximize the number of legally-
eligible offsets. Also, payment agencies are responsible for notifying
the Secretary of any legal bars to offset of payments which the agency
certifies for payment.
Paragraph (e)(9) explains that when a payment is offset, both the
disbursing official and the payment agency have met their obligations
with respect to making the payment. Neither the payment agency nor the
disbursing official is liable for any portion of the payment which was
offset. See 31 U.S.C. 3716(c)(2). For example, if an agency certifies a
payment to a Federal contractor for work completed, and that payment is
offset to collect a delinquent debt that the contractor owes to another
Federal agency, the contractor has been paid in full for its services.
When the creditor agency credits the offset amount to the contractor's
delinquent debt, the contractor has received full value for the
services performed under the contract. Payment agencies should be
careful not to issue an overpayment to a contractor who claims non-
receipt of payment after the initial payment is offset to pay the
contractor's debt. Contractors should contact the creditor agency to
which the debt is owed for questions about the debt or to make
repayment arrangements.
(f) Offset
Paragraph (f) describes the offset process, including amounts to be
offset and the priority of how offsets are applied when it is
determined that a payee owes more than one delinquent debt. Generally,
a payment will be offset by the lesser of the amount of the payment, or
the amount of the delinquent debt, including associated interest,
penalties, and administrative costs. The offset amount is limited for
certain Federal payments. See for example, 31 CFR 285.4 and 285.7 for
limitations on offsets of certain Federal benefit payments and Federal
salaries. Creditor agencies may specify that a lesser amount be offset
based on a written agreement between the creditor agency and the
debtor, or based upon the creditor agency's determination that the
amount allowed by law would create a financial hardship.
Paragraph (f)(2) establishes that a recurring Federal retirement
annuity payment made by the Office of Personnel Management (OPM) will
be offset up to a maximum of 25 percent to collect a delinquent debt
under this section. For example, if an OPM annuity payment is $850.00,
the amount offset would be no more than $212.50. Although the DCIA did
not expressly provide for any such limitation on OPM recurring
retirement annuity payments, limitations apply to other types of
payments considered income. For example, the Consumer Credit Protection
Act limits the amount of pay subject to garnishment by a private
creditor to 25% under most circumstances. Limitations on other types of
Federal payments, such as Federal salary and social security payments
apply. Therefore, as authorized by 31 U.S.C. 3716(c)(5), the Secretary
has determined that a limitation on the offsets of OPM retirement
payments is necessary to carry out the centralized offset program.
After balancing the Government's
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interest in collecting large dollar debts within a reasonable time
frame with the interest of the debtor/payee in receiving some
retirement income, FMS has determined that a 25% limitation should be
applied.
Paragraph (f)(3) describes the order in which deductions will be
applied when more than one delinquent debt is submitted to FMS for the
same payee. If the Internal Revenue Service has served a tax levy
through TOP, amounts deducted will first be applied to such tax levy.
Deductions for tax levies are not governed by this section, but have a
higher legal priority. See 31 U.S.C. 3716(c)(8). Remaining amounts will
be applied in the following order; first, to debts for past-due support
assigned to a State pursuant to sections 402(a)(26) and 471(a)(17) of
the Social Security Act; second, to debts owed to Federal agencies;
third, to any qualifying past due support debts not assigned to a
State; and fourth, to debts owed to States for obligations other than
past-due support.
Paragraph (f)(3) also explains what happens when a recurring
payment is being offset to collect a debt, and a debt with a higher
legal priority is submitted to TOP. The debtor may not, in all such
cases, receive an additional warning notice when the offsets are
applied to the higher priority debt. See paragraph (g)(2) of this
section. For example, FMS collects delinquent tax debts through TOP
when the Internal Revenue Service serves a levy. Levies to collect
delinquent tax debts have a higher legal priority than offsets to
collect nontax debts. See 31 U.S.C. 3716(c)(8). If a recurring payment
is being offset under this section to collect a nontax debt when the
Internal Revenue Service serves a levy to collect a tax debt, offsets
may be interrupted until the tax levy is satisfied or released. In this
case, immediately upon satisfaction of the tax debt, FMS may resume
offsetting the payment to collect the Federal nontax debt without
further warning notice to the debtor. As with all offsets, the
disbursing official (or FMS, on behalf of the disbursing official) will
send an offset notice (see paragraph (g)(3)) at the time of the offset.
(g) Notices
Paragraph (g) describes the two types of notices that disbursing
officials will provide to the debtor/payee--warning notices and offset
notices. Where the payment offset is a recurring payment, the
disbursing official (or FMS, on behalf of the disbursing official) will
send a warning notice prior to the first offset. The warning notice
will state when the offsets will begin and the anticipated amount of
the offset. When the offset will begin may be stated as a certain
number of days or number of payments from the date of the warning
notice. If appropriate, the anticipated amount of the offset may be
stated as a percentage of the payment. Recipients of recurring payments
also will receive offset notices at the time the disbursing official
offsets the payments. Where the payment offset represents a one-time
payment or non-recurring payment, the disbursing official will not send
a warning notice. The disbursing official (or FMS on behalf of the
disbursing official) will send an offset notice at the time the offset
occurs. Offset notices identify the payment, the amount offset, the
creditor agency that requested the offset, and the name of a contact
within the creditor agency. Pursuant to 31 U.S.C. 3716(c)(7)(B), the
failure of the debtor to receive an offset notice shall not impair the
legality of the offset.
(h) Notification to Creditor and Payment Agencies
Paragraph (h) explains the information that creditor and payment
agencies will receive when an offset occurs.
(i) Disposition of Amounts Collected
Paragraph 285.5(i) describes the process for disposition of amounts
collected by means of offset. After offsetting a payment, FMS will
normally deduct any fees charged in accordance with paragraph 285.5(j)
before transmitting the remaining amount to the appropriate creditor
agency. Alternatively, FMS may bill the creditor agency.
If FMS learns that an offset has been taken erroneously, FMS will
notify the creditor agency of the erroneous offset, and will collect
the amount paid under the erroneous offset by deducting the amount from
future amounts payable to the creditor agency. An erroneous offset
occurs when the payee was not entitled to the payment or there was
another error in the payment or offset process. Erroneous offsets do
not include offsets which occurred because the creditor agency should
not have certified the debt. If a debt should not have been certified
for offset, the creditor agency will resolve the matter directly with
the debtor. Generally, a disbursing official is not responsible for
refunding money to debtors if a debt should not have been collected by
offset.
(j) Fees
Paragraph (j) describes the fee that FMS will charge for its
services under this section. The fee may include administrative fees
charged by salary paying agencies that match their salary payments with
debts in the TOP database and conduct the offset of, or calculate the
correct amount to be offset from, Federal salary payments on behalf of
disbursing officials. Under 31 U.S.C. 3716(c)(4), FMS' fee may cover
the full cost of implementing centralized offset, including certain
costs incurred by non-Treasury disbursing officials performing offsets.
In accordance with 31 U.S.C. 3711(g)(7), FMS may reimburse non-Treasury
disbursing officials for certain expenses associated with
governmentwide debt collection unless otherwise prohibited by law.
(k) Waiver of Certain Provisions Under the Computer Matching Privacy
and Protection Act of 1988
The DCIA includes provisions intended to simplify the matching
process involving delinquent debtor records certified by creditor
agencies and payment records certified by payment agencies for purposes
of offsetting payments other than tax refunds. In particular, where a
creditor agency certifies that the due process requirements of 31
U.S.C. 3716(a) have been met, the DCIA authorizes the Secretary to
waive provisions of the Computer Matching and Privacy Protection Act of
1988 (CMPPA), Pub. L. No. 100-503, as amended, that require matching
agreements, as well as post match notice and verification of the
results of individual matches. See 5 U.S.C. 552a(o) and (p). Once a
waiver has been granted by the Secretary, the DCIA also simplifies the
CMPPA review and reporting requirements codified at 5 U.S.C. 552a(u) by
placing all such responsibility with the data integrity board of the
Department of the Treasury. Paragraph (k) of this section provides
notice that this waiver authority has been delegated to FMS, and
clarifies that FMS has granted a general waiver for all agencies that
certify to FMS that the requirements of paragraph (d)(6) of this
section have been met. A waiver is not required for matching debts for
purposes of tax refund offset. See 5 U.S.C. 552a(a)(8)(B).
Special Analysis
FMS is promulgating this interim rule without opportunity for prior
public comment pursuant to the Administrative Procedure Act, 5 U.S.C.
553 (the ``APA''), because FMS has determined that a comment period
would be unnecessary, impracticable, and contrary to the public
interest. Because no notice of proposed rulemaking is required, the
provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) do
not apply.
[[Page 78942]]
The public is invited to submit comments on the interim rule which
will be taken into account before a final rule is issued.
FMS has determined that good cause exists to make this interim rule
effective upon publication without providing the 30-day period between
publication and the effective date contemplated by 5 U.S.C. 553(d). The
purpose of a delayed effective date is to afford persons affected by a
rule a reasonable time to prepare for compliance. However, in this
case, as required by the DCIA, agencies already participate in TOP.
Inasmuch as this interim rule provides important guidance that is
expected to facilitate implementation of the authority contained in the
law, FMS believes that good cause exists to make the rule effective
upon publication.
Regulatory Analysis
This interim rule is not a significant regulatory action as defined
in Executive Order 12866. It is hereby certified that this rule will
not have a significant impact on a substantial number of small
entities. Therefore a regulatory flexibility analysis is not required.
This regulation will not impose significant costs on small businesses,
because this regulation only impacts small businesses who receive
payments from Federal agencies and who are delinquent on debts owed to
the Federal government.
List of Subjects in 31 CFR Part 285
Administrative practice and procedure, Black lung benefits, Child
Support, Claims, Credit, Debts, Disability benefits, Federal employees,
Garnishment of wages, Hearing and appeal procedures, Loan programs,
Privacy, Railroad retirement, Railroad unemployment insurance,
Salaries, Social Security benefits, Supplemental Security Income (SSI),
Taxes, Veteran's benefits, Wages.
Authority and Issuance
For the reasons set forth in the preamble, 31 CFR part 285 is
amended as follows:
PART 285--DEBT COLLECTION AUTHORITIES UNDER THE DEBT COLLECTION
IMPROVEMENT ACT OF 1996
1. The authority citation for part 285 continues to read as
follows:
Authority: 5 U.S.C. 5514; 26 U.S.C. 6402; 31 U.S.C. 321, 3701,
3711, 3716, 3719, 3720A, 3720D; E.O. 13019; 3 CFR, 1996 Comp., p.
216.
2. Section 285.5 is added to Part 285, Subpart A, to read as
follows:
Sec. 285.5 Offset of Federal payments to collect nontax debt owed to
the United States.
(a) Scope. (1) This section governs the centralized offset of
Federal payments to collect delinquent, nontax debts owed to Federal
agencies in accordance with 31 U.S.C. 3716, 3720A and 26 U.S.C. 6402
and applicable regulations. The Department of the Treasury's Financial
Management Service (FMS) administers centralized offset through the
Treasury Offset Program. Offset occurs when the Federal government
withholds part or all of a debtor's Federal payment to satisfy the
debtor's delinquent debt owed to the government.
(2) Special rules apply to the collection of delinquent, nontax
debts through the centralized offset of certain types of Federal
payments, including tax refunds (31 CFR 285.2), Federal benefit
payments (31 CFR 285.4), and Federal salary payments (31 CFR 285.7).
While this rule applies to such payments, nothing in this rule is
intended to contradict any provision of those more specific sections.
To the extent any provision of this rule is inconsistent with a more
specific provision of Sec. Sec. 285.2, 285.4 or 285.7 of this part,
the more specific provision shall apply.
(3) The receipt of collections pursuant to this section does not
preclude a Federal agency from pursuing other debt collection remedies
in conjunction with centralized offset. Nothing in this section
precludes an agency from pursuing all available debt collection
remedies simultaneously, provided that collections do not exceed the
amount of the debt, including any interest, penalties, and
administrative costs.
(b) Definitions. As used in this section:
Agency or Federal agency means a department, agency or subagency,
court, court administrative office, or instrumentality in the
executive, judicial, or legislative branch of the Federal Government,
including government corporations.
Centralized offset means the offset of Federal payments through the
Treasury Offset Program to collect debts which creditor agencies have
certified pursuant to 31 U.S.C. 3716(c), 3720A(a) and applicable
regulations. The term ``centralized offset'' includes the Treasury
Offset Program's processing of offsets of Federal payments disbursed by
disbursing officials other than FMS.
Creditor agency has the same meaning as found at 31 U.S.C.
3701(e)(1) and means any Federal agency that is owed a claim or debt
that seeks to collect that claim or debt through offset of Federal
payments.
Debt or claim has the meaning contained in 31 U.S.C. 3701(b) and
means any amount of money, funds, or property that has been determined
by an appropriate official of the Federal government to be owed to the
United States by a person, organization, or entity, except another
Federal agency. The terms ``debt'' and ``claim'' are synonymous and
include debt administered by a third party acting as an agent for the
Federal Government. For purposes of this section, the term ``debt''
does not include debts arising under the Internal Revenue Code of 1986
(26 U.S.C. 1 et seq.), the tariff laws of the United States, or the
Social Security Act (42 U.S.C. 301 et seq.), except to the extent
provided in sections 204(f) and 1631(b)(4) of such Act (42 U.S.C.
404(f) and 1383(b)(4)(A), respectively) and 31 U.S.C. 3716(c).
Debt collection center means a Federal agency or a unit or
subagency within a Federal agency that has been designated by the
Secretary to collect debt owed to the United States.
Debtor means a person who owes a debt to the United States.
Delinquent or past-due refers to the status of a debt and means a
debt has not been paid by the date specified in the agency's initial
written demand for payment, or applicable agreement or instrument
(including a post-delinquency payment agreement), unless other payment
arrangements satisfactory to the creditor agency have been made.
Nothing in this section is intended to define whether a debt is
delinquent or past-due for purposes other than offset under this
section.
Delinquent debt record means information about a past-due, legally
enforceable debt submitted by a creditor agency to FMS for purposes of
offset in accordance with the provisions of this section. Information
about a past-due, legally enforceable debt includes, but is not limited
to, the amount of the debt and the debtor's name, address, and taxpayer
identifying number.
Disbursing official means an official who has authority to disburse
public money pursuant to 31 U.S.C. 3321 or another law, including an
official of the Department of the Treasury, the Department of Defense,
the United States Postal Service, or any other government corporation,
or any official of the United States designated by the Secretary of the
Treasury to disburse public money.
FMS means the Financial Management Service, a bureau of the
Department of the Treasury and its disbursing office. FMS is
responsible for administering centralized offset.
[[Page 78943]]
Legally enforceable refers to a characteristic of a debt and means
there has been a final agency determination that the debt, in the
amount stated, is due, and there are no legal bars to collection by
offset. Debts that are not legally enforceable for purposes of this
section include, but are not limited to, debts subject to the automatic
stay in bankruptcy proceedings or debts covered by a statute that
prohibits collection of such debt by offset. For example, if a
delinquent debt is the subject of a pending administrative review
process required by statute or regulation, and if collection action
during the review process is prohibited, the debt is not considered
legally enforceable for purposes of this section. Nothing in this
section is intended to define whether a debt is legally enforceable for
purposes other than offset under this section.
Match means the taxpayer identifying number and name (or derivative
thereof) of the payee on a payment record are the same as the taxpayer
identifying number and name of the debtor on a delinquent debt record.
Offset means withholding funds payable by the United States to, or
held by the United States for, a person to satisfy a debt owed by the
payee.
Past-due has the same meaning as ``delinquent'', as defined above.
Payee means a person who is due a payment from a disbursing
official as certified by the payment agency. For purposes of this
section, a ``payee'' is a person who is entitled to the benefit of all
or part of a payment from a disbursing official.
Payment agency means any agency that transmits payment requests, in
the form of certified payment vouchers or other similar forms, to a
disbursing official for disbursement.
Payment record means information contained on a payment request, in
the form of a certified payment voucher or other similar form, that has
been transmitted to a disbursing official for disbursement in
accordance with the provisions of 31 U.S.C. 3325 and 3528 or other
applicable law. For purposes of matching, ``payment record'' may
include information extracted from a payment request. Such information
could include, but is not limited to, the amount and type of payment
and the payee's name, address, and taxpayer identifying number.
Person means an individual, corporation, partnership, association,
organization, State or local government, or any other type of entity
other than a Federal agency.
Recurring payment means a payment to an individual that is expected
to be payable to a payee at regular intervals, at least four times
annually. The term ``recurring payment'' does not include payments made
pursuant to a Federal contract, grant or cooperative agreement.
Representative payee means a person named as payee on the payment
voucher certified by the payment agency who is acting on behalf of a
person entitled to receive the benefit of all or part of the payment.
Secretary means the Secretary of the Treasury.
Taxpayer identifying number means the identifying number described
under section 6109 of the Internal Revenue Code of 1986 (26 U.S.C.
6109). For an individual, the taxpayer identifying number is generally
the individual's social security number.
(c) General rule. (1) Creditor agencies shall submit delinquent
debts to FMS for purposes of offset in accordance with paragraph (d) of
this section.
(2) Disbursing officials shall compare payment records with
delinquent debt records submitted to FMS for collection by offset. When
a match occurs, and all other requirements for offset have been met,
the disbursing official shall offset the payment to satisfy, in whole
or part, the payee's debt to the extent allowed by law. The disbursing
official shall pay any amounts not offset to the payee. See paragraphs
(e), (f), (g), and (h) of this section.
(d) Requirements for creditor agencies--(1) Mandatory notification
of delinquent debts. As required by 31 U.S.C. 3716(c)(6), and in
accordance with the provisions of this section, a creditor agency shall
notify FMS of all legally enforceable debts over 180 days delinquent
that are owed to the creditor agency. By complying with this
requirement, creditor agencies will satisfy the requirement of 31
U.S.C. 3720A(a) to notify the Secretary of past due, legally
enforceable debt for purposes of tax refund offset. If a debt which is
over 180 days delinquent is considered not legally enforceable solely
because it is under review as described in paragraph (d)(6)(ii)(C) of
this section, the agency must submit the debt to FMS for collection by
offset within 30 days of completing the review.
(2) Discretionary notification of delinquent debts. Creditor
agencies may notify FMS of any debt that is less than 180 days
delinquent, so long as the requirements of paragraph (d)(3) of this
section are met.
(3) Debt eligibility. (i) A debt submitted to FMS for collection by
centralized offset must be:
(A) Past-due in the amount stated by the creditor agency;
(B) Legally enforceable;
(C) Less than 10 years delinquent, unless the debt legally may be
offset if more than 10 years delinquent;
(D) More than $25, or such other amount as FMS may prescribe; and
(E) Not secured by collateral subject to a pending foreclosure
action, unless the creditor agency certifies that offset will not
affect the Government's rights to the secured collateral.
(ii) The creditor agency must certify that the debt is eligible for
collection by offset, as required in paragraph (d)(6) of this section.
(iii) Debts owed by foreign sovereigns may be referred to Treasury
Offset Program at the discretion of the creditor agency to the extent
allowed by law, but are excluded from mandatory referral under
paragraph (d)(1) of this section.
(iv) In accordance with 31 U.S.C. 3719 and the procedures
promulgated thereunder, creditor agencies must report to Treasury the
amount of debt over 180 days delinquent eligible for the Treasury
Offset Program. The procedures require that such report include the
amount of debt over 180 days delinquent that the creditor agency has
determined is not eligible for the Treasury Offset Program and the
reasons for such determination.
(4) Creditor agency regulations. Prior to submitting a debt to FMS
for purposes of offset, Federal agencies shall prescribe regulations in
accordance with the requirements of 31 U.S.C. 3716(b), 31 CFR
901.3(b)(4), 31 U.S.C. 3720A(a), and 31 CFR 285.2(c). Before submitting
debts to FMS for purposes of offsetting Federal salary payments,
creditor agencies must also publish regulations pursuant to 5 U.S.C.
5514, 31 CFR 285.7(d)(2), and 5 CFR 550.1104.
(5) Delinquent debt information requirements. For each debt
submitted to FMS for offset, the creditor agency shall provide the
following information:
(i) Name and taxpayer identifying number of the person who owes the
debt;
(ii) Debtor's address last known to the creditor agency;
(iii) The amount of the debt (including, as applicable, interest,
penalties and administrative costs) and the date on which the debt
became delinquent;
(iv) The contact within the creditor agency who will handle
questions, concerns or communications regarding the debt;
(v) Written certification as required in paragraph (d)(6) of this
section; and
[[Page 78944]]
(vi) Other information as may be requested by FMS.
(6) Creditor agency certification. At the time the creditor agency
notifies FMS of a debt for purposes of collection by offset, the
creditor agency shall provide, in the manner required by FMS, written
certification to FMS that:
(i) The debt meets the requirements described in paragraph
(d)(3)(i) of this section;
(ii) In compliance with 31 U.S.C. 3716, 3720A, 26 U.S.C. 6402, and
applicable regulations, the creditor agency has made a reasonable
attempt to provide each debtor with:
(A) Written notification, at least sixty days prior to submitting
the debt and at the debtor's most current address known to the agency,
of the nature and the amount of the debt, the intention of the creditor
agency to collect the debt through offset, and an explanation of the
rights of the debtor;
(B) An opportunity to inspect and copy the records of the creditor
agency with respect to the debt;
(C) An opportunity for a review within the creditor agency of the
determination of indebtedness, including the opportunity to present
evidence that all or part of the debt is not past-due or legally
enforceable;
(D) An opportunity to enter into a written repayment agreement with
the creditor agency; and
(E) In the case of Federal employees, an opportunity for a hearing
prior to submitting the debt for Federal salary offset. See 5 U.S.C.
5514 and 5 CFR 550.1104. (See 31 CFR 285.7(d), which describes the
authority to waive the salary offset certification as a prerequisite to
referring the debt for other types of offsets.)
(iii) The creditor agency has complied with all statutes,
regulations, and policies applicable to the creditor agency's
assessment of interest, penalties and administrative costs (including,
as applicable, 31 U.S.C. 3717), and that the creditor agency has
provided a written notice to debtors explaining the creditor agency's
requirements concerning any such charges assessed against those
debtors;
(iv) The individual signing the certification has the delegated
authority to execute the certification on behalf of the head of the
creditor agency; and
(v) such additional information that FMS may from time to time
require in compliance with law, regulation or policy.
(7) Updating Certification. After a debt has been submitted to FMS
for purposes of collection by offset, the creditor agency shall
provide, at least annually, in the manner and time frames required by
FMS, written certification to FMS that:
(i) The debt continues to meet the requirements described in
paragraph (d)(3) of this section; and
(ii) The creditor agency has properly credited all collections to
the debt balance (other than collections received through centralized
offset).
(8) FMS instructions to creditor agencies. Agencies will provide
the certification in a form and manner prescribed by FMS. FMS will
instruct agencies as to the form such written certifications will take
and how certifications can be delivered to FMS, including, but not
limited to, the use of electronic data transmission.
(9) Agencies which are both creditor and disbursing officials. A
creditor agency that also designates disbursing officials pursuant to
31 U.S.C. 3321(c) is not required to certify debts arising out of its
operations to FMS before such agency's disbursing officials offset to
collect such claims. This paragraph (d)(9) does not apply to FMS when
it submits debts which it is servicing pursuant to 31 U.S.C. 3711(g).
(10) Correcting and updating debt information. (i) When submitting
debts for offset, the creditor agency must properly credit all
collections, other than collections received from centralized offset.
(ii) The creditor agency shall update delinquent debt records, in
the manner and time frames required by FMS, to reflect any amounts
credited by the creditor agency to the debtor's account after
submission of the debt to FMS (other than credits for amounts collected
by centralized offset).
(iii) The creditor agency may update delinquent debt records to
reflect any increases in the amount of the debt submitted to FMS for
collection by offset provided that the creditor agency has complied
with the requirements of paragraph (d)(6) of this section with regard
to the increased amounts.
(iv) The creditor agency shall notify FMS immediately of any change
in the status of the legal enforceability of the debt--for example, if
the creditor agency receives notice that the debtor has filed for
bankruptcy protection.
(v) The creditor agency shall notify FMS if it has returned any
moneys to the debtor/payee because of an offset that should not have
occurred, as described in paragraph (i)(2) of this section.
(11) Debts at FMS, a debt collection center, or the Department of
Justice. If a creditor agency has transferred a debt to FMS or a
Treasury-designated debt collection center pursuant to 31 U.S.C.
3711(g) and 31 CFR 285.12, or if a creditor agency has referred a debt
to the Department of Justice for enforced collection, then FMS, the
debt collection center, or the Department of Justice, as the case may
be, is responsible for submitting the debt information to FMS to
satisfy the creditor agency's obligations under 31 U.S.C. 3716(c)(6)
and this section.
(12) Certification of amount to be offset if different than maximum
allowed by law. Generally, the amount of an offset will be calculated
as set forth in paragraph (f)(2) of this section. If the creditor
agency certifies to FMS that the creditor agency has determined the
offset amount allowed by law would result in financial hardship to the
debtor and that a lesser offset amount (specified either in dollar
amount or as a percentage of the payment) is reasonable and appropriate
based on the debtor's financial circumstances, then the disbursing
official shall offset such lesser amount specified by the creditor
agency.
(13) Duplication of notices not required. Nothing in this section
requires any creditor agency to duplicate any notice or opportunity for
hearing or review provided to the debtor prior to offset.
(e) Payments made by the United States--(1) Payments eligible for
offset. Except as set forth in paragraph (e)(2) of this section, all
Federal payments are eligible for offset under this section. Eligible
Federal payments include, but are not limited to, Federal wage, salary,
and retirement payments, vendor and expense reimbursement payments,
certain benefit payments, travel advances and reimbursements, grants,
fees, refunds, judgments (including those certified for payment
pursuant to 31 U.S.C. 1304), tax refunds, and other payments made by
Federal agencies.
(2) Payments excluded from offset under this section. This section
does not apply to the following payments:
(i) Black Lung Part C benefit payments, or Railroad Retirement tier
2 payments;
(ii) Payments made under the tariff laws of the United States;
(iii) Veterans Affairs benefit payments to the extent such payments
are exempt from offset pursuant to 38 U.S.C. 5301;
(iv) Payments made under any program administered by the Secretary
of Education under title IV of the Higher Education Act of 1965 for
which payments are certified by the Department of Education;
(v) Payments made under any other Federal law if offset is
expressly prohibited by Federal statute;
(vi) Payments made under any program for which the Secretary has
[[Page 78945]]
granted an exemption in accordance with the provisions of 31 U.S.C.
3716(c)(3)(B) and paragraph (e)(7) of this section; and
(vii) Federal loan payments other than travel advances.
(3) Specific rules for certain payment types. (i) Specific rules
apply with respect to the offset of the following types of payments:
(A) Social Security benefit payments (excluding Supplemental
Security Income payments), Black Lung (part B) payments, and Railroad
Retirement (other than tier 2) payments to the extent such payments are
subject to offset under 31 U.S.C. 3716(c)(3)(A) (see 31 CFR 285.4);
(B) Federal salary payments (see 31 CFR 285.7; 5 CFR 550.1101
through 550.1108); and
(C) Tax refund payments (see 31 CFR 285.2).
(ii) This section governs the offset of such payments to the extent
that this section is not inconsistent with the special rules that apply
for a particular type of payment.
(4) Payments made to joint payees. If a payment is certified to
more than one payee (i.e., joint payees), the entire payment (including
a tax refund payment) will be subject to offset for a debt of either
payee, unless otherwise prohibited by law or regulation. See 31 CFR
285.2(g) regarding offset of joint tax refunds and claims to return
offset funds to the non-debtor, joint payee.
(5) Payments made to representative payees. If a payment is made to
a person solely in that person's capacity as a representative payee for
another person having the beneficial interest in a payment, the
disbursing official shall offset that payment only to collect debts
owed by the person having the beneficial interest in the payment.
Payment agencies are responsible for identifying representative payees.
(6) Assigned payments. (i) If a person, including a Federal
contractor, assigns the right to receive a Federal payment to a third
party (the ``assignee''), the assigned payment will be subject to
offset to collect a delinquent debt owed by the assignee.
(ii) An assigned payment will also be subject to offset to collect
delinquent debts owed by the assignor unless:
(A) In accordance with 41 U.S.C. 15(e)-(f), the payment has been
properly assigned to a financial institution pursuant to a Federal
contract, the contract contains provisions prohibiting the payment from
being reduced or offset for debts owed by the contractor, and the debt
arose independently of the contract; or
(B) pursuant to 31 U.S.C. 3727, the payment is being made to the
assignee as settlement or satisfaction of a claim brought by the
assignee against the creditor agency based upon the contract, and the
debt of the contractor arises independently of the contract; or
(C) the debtor has properly assigned the right to such payments and
the debt arose after the effective date of the assignment.
(7) Payment agency requests for exemptions from centralized offset
pursuant to 31 U.S.C. 3716(c)(3)(B)--(i) Means-tested payments. The
Secretary will exempt from centralized offset payments made under
means-tested programs when requested by the head of the agency making
such payments. For purposes of this section ``means-tested programs''
are those which base eligibility on a determination that the income
and/or assets of the beneficiary are inadequate to provide the
beneficiary with an adequate standard of living without program
assistance.
(ii) Payments made under programs which are not means-tested. Upon
written request from the payment agency, the Secretary may exempt
classes of payments which are not means-tested. Payment agencies may
request that the Secretary exempt 100% of each payment in a payment
class or that the Secretary exempt a specific lesser percentage. The
Secretary will consider such requests under standards prescribed by the
Secretary and published on the FMS Web site. See www.fms.treas.gov/debt
.
(iii) Procedures for requesting exemptions. The head of the payment
agency must make a request for exemption in writing. The request must
comply with the procedures published by FMS and made available at its
Web site. See www.fms.treas.gov/debt.
(iv) Exemptions apply to classes of payments. The Secretary will
only exempt classes of payments. Requests for exemption of individual
payments will not be considered.
(8) Payment agency responsibilities. (i) Payment agencies shall
prepare and submit payment vouchers in the manner prescribed by the
disbursing official to ensure that all payments legally eligible for
offset will be offset and all payments not eligible will not be offset.
Payment agencies shall notify the disbursing agency, in the manner
prescribed by FMS, that a payment is a recurring payment.
(ii) Payment agencies shall also review the nature of payments the
agency certifies and notify FMS of any legal bars to centralized offset
of payments.
(9) Payment and disbursing officials have satisfied the obligation
underlying the payment. When an offset occurs, the debtor has received
payment in full for the underlying obligation represented by the
payment. Pursuant to 31 U.S.C. 3716(c)(2)(A), neither the disbursing
official nor the payment agency shall be liable for the amount of the
offset on the basis that the underlying obligation was not satisfied.
For example, if an agency certifies a payment to a Federal contractor
for work completed or services provided, and that payment is offset to
collect a delinquent debt that the contractor owes to another Federal
agency, the contractor has been paid in full for its services. When the
creditor agency credits the offset amount to the contractor's
delinquent debt, the contractor has received full value for the
services performed under the contract.
(f) Offset--(1) When offset occurs. When a match occurs and all
other requirements for offset under 31 U.S.C. 3716(c), 3720A, and
applicable regulations have been met, the disbursing official shall
offset the payee's Federal payment to satisfy, in whole or part, the
debt owed by the debtor. Offsets will continue until the debt,
including any interest, penalties, and administrative costs, is paid in
full or otherwise resolved to the satisfaction of the creditor agency.
(2) Offset amount. (i) Except as otherwise provided in 31 CFR
285.4(e) and 285.7(g) (addressing centralized offset of certain Federal
benefit payments and salary payments, respectively), the disbursing
official shall offset the lesser of:
(A) The amount of the payment as shown on the payment record; or
(B) The amount of the debt, including any interest, penalties and
administrative costs; or
(C) In the case of retirement annuity payments certified by the
Office of Personnel Management, up to twenty-five percent of the amount
of the payment as shown on the payment record.
(ii) Notwithstanding paragraph (f)(2)(i) of this section, if a
creditor agency has specified another amount, either in dollars or as a
percentage of the payment, pursuant to paragraph (d)(15) of this
section, the disbursing official shall offset the amount specified by
the creditor agency.
(3) Priorities for collecting multiple debts owed by the payee. (i)
A levy pursuant to the Internal Revenue Code of 1986 shall take
precedence over deductions under this section.
(ii) When a payment may be offset to collect more than one debt
under this section, amounts offset will be applied:
[[Page 78946]]
(A) First, to satisfy any past due support debts assigned to a
State pursuant to sections 402(a)(26) and 471(a)(17) of the Social
Security Act (see 26 U.S.C. 6402(c) and sections 285.1 and 285.3 of
this part);
(B) Second, to satisfy any debts owed to Federal agencies;
(C) Third, to satisfy any qualifying past-due support claims not
assigned to a State (see 26 U.S.C. 6402(c) and sections 285.1 and 285.3
of this part); and
(D) Fourth, to any debts owed to States for debts other than past-
due support (see Sec. 285.8 of this part).
(iii) If a recurring payment is being offset to collect a debt when
another debt owed by the payee with a higher priority is submitted to
FMS, and if the amount that may be legally offset from such payment is
insufficient to satisfy both debts, then collections for the first,
lower-priority debt will be suspended or reduced until the debt with
the higher priority is satisfied or is otherwise uncollectible.
(g) Notices--(1) Warning notice by disbursing official to payee/
debtor. Before offsetting a recurring payment, the disbursing official,
or FMS on behalf of the disbursing official, will notify the payee in
writing when offsets will begin (which may be stated as a number of
days or number of payments from the time of the notice) and the
anticipated amount of such offset (which may be stated as a percentage
of the payment). Such notice shall also provide the information
contained in paragraph(g)(3) of this section.
(2) No additional warning notice when collections are suspended and
resumed. As described in paragraph (f)(3)(iii) of this section, FMS may
suspend or reduce the application of collections from a recurring
payment for one debt when another debt, which is owed by the same
debtor and has a higher legal priority, is submitted to FMS for
collection. The disbursing official is not required to send additional
warning notices when collections for the lower priority debt resume;
however, pursuant to paragraph (g)(3) of this section, each offset will
be accompanied by an offset notice, which explains how the offset
amounts were applied.
(3) Offset notice. When an offset occurs under this section, the
disbursing official, or FMS on behalf of the disbursing official, shall
notify the payee in writing that an offset has occurred including:
(i) A description of the payment and the amount of offset taken;
(ii) The identity of the creditor agency requesting the offset; and
(iii) A contact point within the creditor agency who will handle
concerns regarding the offset.
(h) Notification to creditor and payment agencies. (1) FMS will
notify the creditor agency of all offsets made to collect the creditor
agency's debts. Such notification shall include the complete name and
taxpayer identifying number of each debtor/payee, the total amounts
collected from each debtor/payee's payment, and the amount of any fees
charged by FMS and any other disbursing official conducting offsets.
FMS will not advise the creditor agency of the source of payment from
which such amounts were collected.
(2) When a non-Treasury disbursing official conducts the offset,
that disbursing official will transmit to FMS all of the information
necessary for FMS to send notification under paragraph (h)(1) of this
section, including the amount of any fees that the creditor agency is
responsible for paying.
(3) FMS will make available to the payment agency the information
contained in the notification of offset, so that the payment agency may
direct any questions concerning the claim to the appropriate contact
person in the creditor agency.
(i) Disposition of amounts collected. (1) FMS will transmit amounts
collected for debts, less fees charged pursuant to paragraph (j) of
this section, to the appropriate creditor agency or agencies.
Alternatively, FMS may bill the creditor agency for any fees charged
pursuant to paragraph (j) of this section.
(2) If FMS learns from a paying agency that a payment should not
have been made, and thus not offset, FMS will notify the creditor
agency. FMS may deduct the offset amount from future amounts payable to
the creditor agency. Alternatively, upon FMS's request, the creditor
agency shall return promptly to the disbursing official an amount equal
to the amount of the offset (without regard to whether any other
amounts payable to such disbursing official have been paid).
(3) Generally, the disbursing official is not responsible for
refunding money to debtors. The creditor agency shall notify FMS any
time the creditor agency returns all or any part of an offset payment
to an affected payee. FMS and the creditor agency shall adjust the
debtor records appropriately.
(j) Fees. FMS may charge a fee sufficient to cover the full cost of
implementing the centralized offset program, including the amount of
any fees charged by other disbursing officials conducting an offset
under this section. FMS may deduct the fees from amounts collected by
offset or may bill the creditor agencies. FMS will charge fees only for
actual offsets collected.
(k) Waiver of certain provisions under the Computer Matching
Privacy and Protection Act of 1988. As authorized by 31 U.S.C. 3716(f),
FMS, under a delegation of authority from the Secretary, has waived
certain requirements of the Computer Matching and Privacy Protection
Act of 1988, Pub. L. No. 100-503, as amended, for matches between
delinquent debt records and payment records for offset purposes upon
written certification by the head of the creditor agency that the
requirements of 31 U.S.C. 3716(a) have been met. Specifically, for
administrative offset of Federal payments other than tax refunds, FMS
has waived the requirements for a computer matching agreement contained
in 5 U.S.C. 552a(o) and for post-match notice and verification
contained in 5 U.S.C. 552a(p) so long as the creditor agency provides
certification to FMS in accordance with the provisions of paragraph
(d)(6) of this section. Such waiver is not necessary for offset of
Federal tax refunds, pursuant to 5 U.S.C. 552a(a)(8)(B). The Data
Integrity Board of the Department of the Treasury shall review and
include in reports under 5 U.S.C. 552a(u)(3)(D) a description of the
matching activities conducted for centralized offset under this
section. No other Data Integrity Board is required to take any action
under 5 U.S.C. 552a(u) concerning these computerized comparisons.
Dated: December 19, 2002.
Richard L. Gregg,
Commissioner.
[FR Doc. 02-32572 Filed 12-24-02; 8:45 am]
BILLING CODE 4810-35-P